PC Makers: Tablets Are a Problem, But Not the Only Problem

It’s a rough morning for the establishment players in the PC industry: HP stock is down 5%, Microsoft down 4.5%, Lenovo down 7.4%. The only big PC maker whose stock has stayed relatively flat is Dell, which isn’t surprising given the bidding war taking place over the company.

But while the traditional end of the PC, rise of the tablet-smartphone axis story is well known, other forces are also at play that are bad news for the industry’s big players. In a note today, Trip Chowdhry of Global Equities research points to a couple of other developments that are set to sting the PC makers. And both of them come from Amazon.

First, Amazon — which operates a massive computer network to power both its own services and its cloud computing business — is cutting out the middle men like HP and Dell when it wants to buy new servers. Instead, it’s going straight to the source: the so-called original design manufacturers (ODMs) in Taiwan.

Second, Amazon has hired 50-60 new enterprise salespeople, Chowdhry estimates, with some of them coming from Oracle. Those people are now busy selling big corporate customers on the idea of ditching their own servers and running their computing work in the Amazon cloud. Particular uses, like crunching monthly and quarterly financial reports, require heavy computer work for a couple of days per month – “such workloads are ideally suited” for sending to the Amazon cloud, Chrowdhry writes.

The conclusion? These are another couple of data points among the many that show a steady migration of value in the IT industry, from hardware to what Chowdhry calls the “data-fabric” layer. Whatever you want to call it, it’s not selling boxes with PCs in them, and it’s not what Dell or HP are known for being particularly good at.